BRRRR: A Proven Method to Build a Profitable Real Estate Portfolio
There are plenty of benefits to investing in real estate. Owning land, houses, and other properties offer excellent returns, tax benefits, steady income, and long-term appreciation. It’s also helpful to diversify an investment portfolio by acquiring various assets, such as real estate. Investing in real estate, therefore, is ideal for those who want to protect their money and build wealth.
In the United States, real estate market revenue is projected to reach $369.90 billion in 2022. Furthermore, this market expects an annual growth rate of 3.71% between the current year and 2025. These figures depict how the country’s real estate market continues to thrive, which is why it attracts more investors yearly.
Some investors opt to apply the Buy, Renovate, Rent, Refinance, and Repeat (BRRRR) method to make their real estate portfolio more profitable. The primary goal of BRRRR is to generate rental income.
Though different from BRRRR, the primary goal of house flipping is to sell a property that was purchased and renovated. House flipping made up 10% of U.S. home sales in the first quarter of 2022, based on the 2022 U.S. Home Flipping Report by ATTOM data solutions, making it a lucrative investment opportunity.
The BRRRR method describes investors’ steps to profit from purchasing and renovating a property, renting it to a tenant, then refinancing the home to have funds to purchase another property.
Through this method, investors use their knowledge of real estate investing, such as expertise in buying and renovating distressed properties that are quickly leased to tenants.
Buy a Distressed Property
The first step in the BRRRR method involves purchasing an existing property. Usually, investors buy a distressed property that needs repairs and upgrades to be considered marketable.
Experts believe investors can make the most from a BRRRR real estate investment by buying a property at the lowest possible price. However, the purchase price must allow the investor to price the monthly rent competitively after investing in the renovation, resulting in profitable cash flow.
Rehab the Property
Rehab pertains to the renovation process investors must complete, making the property livable and marketable again. In addition, you’ll need to follow the home safety code in your location to ensure that the property will be fixed and upgraded to meet regulatory standards.
Aside from meeting safety standards, you’ll also need to consider which home improvements will increase property value and rentability. Some of the most profitable home improvements include bathroom and kitchen remodels and enhancements to the property’s curb appeal. Completing these projects can significantly increase home value while improving your chances of leasing it to a tenant and producing profitable cash flow.
Rent the Property to a Tenant
The rental income for the property will be your source of cash flow. You can cover the monthly mortgage and upkeep costs while generating a monthly profit from the rental income. When renting out the property, it’s essential to consider the average price of rentals in the neighborhood. Then, you can determine a competitive rental price that can also be profitable for you.
The average monthly rent for a two-bedroom apartment in the U.S. rose to almost $1,300 in February 2022. However, rental prices vary significantly based on the property’s location and neighborhood. Also, the home’s amenities and design can influence rental prices.
Refinance the Property
The fourth step of the BRRRR method involves acquiring cash-out refinancing for the investment property. The money acquired will then be used to repeat the BRRRR process.
For the cash-out refinancing, you’ll need to work with a lender. You, as the borrower, and the property must qualify for the loan; therefore, working closely and consistently with a lender experienced with real estate investing is helpful.
Repeat the Process
The final step of the BRRRR method involves repeating the same process, using the funds from refinancing the last property purchased. As a result, the investor has funds to invest in another property, while the mortgage on the first home is paid with rental income.
Conclusion
Employing the BRRRR method is an excellent way to earn profit from your real estate investment. However, it’s essential to have the patience, knowledge, expertise, and capital to gain an edge in this market as it has become increasingly competitive.